Campaign Issue: Texas Homeowner Rates

Julie Drenner is the Texas Director of The Heartland Institute's Center on Finance, Insurance and Real Estate. As an attorney and political strategist, Julie Drenner promotes sound public policy by shepherding issues ranging from legal reform to public health through the legislative process. Known for her attention to detail, Julie drafted more than 20 pieces of state legislation and testified in numerous hearings during the past four legislative sessions. CNN, the Los Angeles Times, News Austin 8, KLBJ, and the Dallas Morning News have interviewed and quoted her statements at key times regarding bills under consideration.

Homeowners’ insurance rates have increased, as stated by the Back to Basics PAC video. However, the 76% increase is attributable to a myriad of factors.

Since Rick Perry has been in office almost a decade, pure inflation can account for almost half of the rate increase. Homeowners policies are meant to cover the cost to replace the structure and its contents. As material and labor cost rise, premiums will correspond to the additional resources required to rebuild. Inflation in building costs alone significantly impact insurance rates over time.

Additionally, state law requires insurance companies to remain solvent as a way to protect consumers in the event they must file a claim for damage to their property. Following severe storms such as Hurricanes Dolly, Ike and Katrina, insurance companies were assessed millions by the state to keep the Texas Windstorm Insurance Association in the black. After the payment of these subsidies and claims by their customers, companies were forced to raise their rates to remain solvent and in compliance with the law.

Rates should concentrate around risk. Thus, building in hazardous areas will always cost more to insure than properties with less liability. The key to affordable rates is market competition within those areas to give consumers more choices and more affordable rates. A lack of competition which creates a monopolistic environment coupled with the hazardous weather conditions in Texas drive the rates.

Abandoning risk based rates in favor of more government regulation does not equal consumer protection. The Back to Basics advertisement states that the insurance reform of 2003 allows companies to raise their rates “without having to justify the increase.” However, the current system annually requires companies file their rates for review by the Insurance. If he finds the premiums excessive, he can deny the increase or even require a refund to the customers for past rate hikes. Furthermore, individual customers may petition the court if they feel their rates are unjustified.

In order to address high homeowners’ rates, the state should encourage more companies to write policies in Texas by discarding price controls and encouraging free market competition.